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Student loans are now ‘the largest form of unsecured household debt,’ says CFPB’s Chopra

As outstanding student loan debt has now reached $1 trillion, surpassing the debt consumers hold in credit cards and car loans, the Consumer Financial Protection Bureau (CFPB) has just completed a Financial Aid Shopping Sheet to help students and parents better compare the costs of different colleges and understand their payment options.

Schools that accept tuition assistance and GI Bill money will be required to provide the shopping sheet to military students, and colleges representing more than 1 million students have pledged to use the form, the CFPB said in a statement.

In testimony before the Senate Banking Committee Tuesday, Rohit Chopra, student loan ombudsman for the CFPB, said that while college is “still a good investment,” it doesn’t come without risk.

Student loans, Chopra said, are now “the largest form of unsecured household debt, and the CFPB will play an active role in contributing to a properly functioning student loan marketplace.”

Higher education, he said, “remains the surest path to a good career and job security,” as the unemployment rate for workers with college degrees is 4.1%, compared with 8.4% for those with just a high school diploma. For younger workers, he continued, the unemployment rate for those with college degrees is 8.9% compared with more than 13% for those with just a high school diploma.

But, he stressed, there is “another side to this story. Much attention has been paid to the growing ‘college wage premium’—the difference between wages for those with a college degree versus those without.”

Over the past decade, wages for young college graduates have actually declined by 5.4% when adjusting for inflation, Chopra told lawmakers. Between 1990 and 2010, wages for workers with only a high school diploma declined by 12%, when adjusted for inflation.

“This growing ‘premium’ is largely explained by declining wages for young people without a degree,” he said. “Put another way, the growing gap is not due to a college degree becoming more valuable—it’s that the wages of non-degree holders are falling.”

However, he continued, “the cost of attendance at our nation’s colleges and universities has not been falling. In the past decade, the cost of attendance at public schools increased 42%, and prices at private not-for-profit schools increased 31%, when adjusting for inflation. Tough economic times have led state governments to slash higher education budgets, exacerbating this trend. The cost of tuition and fees has risen more than tenfold since 1979, vastly outpacing inflation, wage growth and health care costs.”

The beta version of the CFPB’s shopping sheet, part of the bureau's “Know Before You Owe” initiative—which was developed in collaboration with the Department of Education—was originally unveiled by CFPB Director Richard Cordray on a visit to South Dakota with Senate Banking Committee Chairman Tim Johnson, D-S.D., in April.

A recent report found that South Dakota has the largest percentage of students leaving college with debt—an average of more than $23,000 per student.

Chopra said during his testimony that the financial aid shopping sheet helps “schools provide better information on student loans and grants,” and pointed to other online tools that the CFPB has developed—which have been used by “tens of thousands of consumers”—on how to navigate their student loan repayment options, avoid default, and protect their credit history. Said Chopra: “We’ve also begun to supervise the nation’s largest banks, where much of today’s private student loan origination takes place, for compliance with federal consumer financial laws and to detect and assess risks to consumers.”